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The Argentine Peso --- A Tale of Many Values

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December 23, 2013
By LOUISE CARR, Associate Editor and Featured Columnist

The year 2013 hasn’t been the best for the Argentine peso. But for a currency that’s been around in one form or another since the birth of Argentina as a free country, instability and fluctuation are nothing new. The peso as it exists today is the descendent in a long line of pesos – the name, along with the power of the peso, changing a little with each manifestation of the currency. In fact, a grand total of 13 zeroes have been dropped from the value of the peso since 1969.  What’s the Argentine peso’s past, and what is its future? 

From Peso Fuerte to Austral to Peso Convertible…..

Following independence in 1816, Argentina managed its own currency with a set of coins denominated in reales, soles, and escudos. The eight-real coin was known as a peso. In 1826, the Peso Fuerte (meaning the "strong peso") , a convertible paper money currency, and the non-convertible currency the peso moneda corriente (meaning the "current currency"), ran in conjunction. In 1881 they were replaced by the "peso moneda nacional" at a rate of 25 to 1. 

The peso moneda nacional was used until 1969 when it moved aside for the "peso ley", at the rate of 1 to 100. 

The Peso Ley was in use until 1983, when the peso argentino moved into place following the return of democracy to the country. This currency gradually devalued until the government brought in the austral in 1985.  

The austral initially replaced the peso argentino at 1 austral to 1,000 pesos. This was the currency in force when Argentina experienced its period of hyperinflation – prices moved upwards 200 percent in July 1989 alone and consumers watched as stores marked up their prices in the morning, afternoon and evening. 

The government issued emergency 10,000, 50,000 and 500,000 austral notes until the currency stabilized with the election of a new President and was replaced by the peso convertible in 1992 at the rate of 1 peso for 10,000 australes. 

The Peso Convertible is still used today although it is no longer pegged to the dollar at 1 for 1 as it was when it was introduced. Following the financial crisis of 2001 this fixed exchange rate disappeared. 

Blue Dollar versus Official Dollar

The exchange rate has since varied – predominantly in a downward direction - from around 3 pesos to the US dollar between 2002 and 2008, to 4 pesos between 2009 and 2011, and 6 pesos in November 2013. As of December 20th 2013, had the rate at 6.42 to the US dollar. 

However, this isn’t the end of the story. Due to plummeting foreign reserves, the Argentine government restricted the sale of US dollars to the point that it is now almost impossible to buy the US currency through official channels.

As generally happens, the black market took over where the official market left off and the “blue” dollar or "dólar blue" was born. 

The Blue Dollar exchange rate is the rate at which locals, tourists and business people alike buy US dollars through unofficial channels – usually the “underground” trading posts on Buenos Aires’ main shopping street, Calle Florida. 

Why go to such lengths to get US dollars? 

Partly because the currency is unavailable through any other means, and partly because there is still a huge amount of mistrust surrounding Argentine financial institutions since the debt crisis of 2001. 

In December 2001 there was a run on the banks, causing a freeze of currency assets in dollars when Argentines were unable to withdraw their savings. The peso is not a trusted currency and its weakness, alongside spiraling inflation, sends residents to the safer havens of the US dollar – by any means possible. 

In May 2013 the blue dollar broke through the “Messi” barrier. That is, on the unofficial market a dollar bought the same number of pesos – 10 – as the number the Argentine soccer Lionel Messi star wears on his jersey. 

The Blue Dollar traded at about 10.08 pesos to the dollar during May 2013, almost twice the then-official rate of 5.21.

Fluctuation, Depreciation, and Devaluation?

So is the peso in freefall? After vowing in May 2013 that the peso would not be devalued under her watch, President Cristina Fernández de Kirchner is currently overseeing a depreciating currency that is expected to decline further in 2014. 

According to many experts, the government is allowing the peso to depreciate in order to stimulate the country’s export market and make investment more attractive. A faster fall for the peso also makes the black market exchange less appealing as the gap between the two exchange rates narrows. 

What the future holds for the Argentine peso is a matter of speculation. But with such a checkered history, nothing would come as much of a surprise. 


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